Real estate- 300,00SF Office Building: Pros and Cons

RE Assignment
Student’s Name
Instructor’s Name
Course Title
Date
RE Assignment 2
1) Real estate- 300,00SF office building
Diversification is essential to controlling portfolio risks, and real estate investment is increasingly popular for diversification, partly because it is not volatile like the stock market. In case of long vacancies, the firm would bear the costs during that period, and this is further complicated when there are uncertainties in the economy. Credit and market risk affect the vacancy rate over time, and the challenge is how to maximize income and return on investments even when the real estate market slows down. Different securities and investment opportunities have other profiles and risks such as debt, equity, and real estate. Investment in real estate provides the firm with regular income long-term capital returns, with controlled volatility and risk. 
Pros
* The property has the potential to increase the cash flow as an opportunity to generate monthly income.
* The monthly income is called cash flow, and the continuity of income received from a property is considered, but a third of the leases are expositing in two years.
* The rental income pays for expenses, and there should be positive cash flow, which is the difference between the income and expenses.
* Besides cash flow as a source of income, there is property appreciation where the value of your property increases when sold, and the gain represents the appreciation.
* There is an opportunity to recoup the investment through rental income and sale above the purchase price plus expenses.
* Real estate is not subject to the daily ups and downs of the stock market because they are a long-term investment. 
* A declining real estate market represents an excellent opportunity to buy, and the CBD is a prime location with high demand for real estate opportunities.
Cons
* The firm cannot get in and out of real estate quickly like the stock exchange making it more challenging to convert assets into cash. 
* If there is a need to sell quickly, this may take time, and there may be lower demand than expected, resulting in tying up huge investments.
* Properties may require management on a daily basis or working with property managers who charge a fee.
* Even if there is a preference for direct management, professional help is needed, requiring ceding control over property management.
* Issues related to vacant properties and bad tenants must be resolved as this affects the cash flow and the return on investment.
* If there is a lack of lease flexibility, this may affect the rental income and, by extension, the cash flow.
* Commercial real estate rental requires higher cash investments than residential buildings, and it may be expensive to maintain the property.  
* Managing the company requires a time commitment to maximize the return on investment as there will be a focus on multiple leases with different expiration dates.
* The risk of borrowers defaulting increases when there is slow or negative growth in the economy and the real estate market as macroeconomic factors affect the demand for housing and the ability to pay.
* The risk that t...